Lower mortgage rates made it easier to buy a home in March

Demand for real estate continued to slump across Canada’s largest housing markets in March, but there were several perks in store for motivated buyers: lower mortgage rates, and overall improved affordability.

According to Ratehub.ca’s latest Affordability study, buying conditions improved in 10 of 13 markets, largely due to falling mortgage rates; the analysis takes into account how changing borrowing costs, mortgage stress test rates, and real estate prices impact the income needed to buy a home, as well as the corresponding monthly mortgage payments, in each market, on a monthly basis.

Interest rates had plunged in the early days of March, following the implementation of 25% blanket US import tariffs on Canadian goods. While those tariffs were only briefly in force before Donald Trump granted a 30-day reprieve, the impact on the bond market was profound. The US 10-year Treasury yield, which acts as a global benchmark for debt costs, fell to a low of 4.16% on the news, marking a whopping 50-basis drop from the previous month’s peak. That in turn pulled down Canadian bond yields, with the Government of Canada five-year yield dropping to the 2.5% range on March 3 - a low not seen since the summer of 2022.

As a result, Canadian lenders discounted their five-year fixed mortgage rates, with the lowest insured option dropping to 3.84% at the time. That pulled the average five-year fixed rate used by the Affordability study down to 4.38%, compared to 4.55% in February. That in turn lowered the mortgage stress test to 6.38%, from 6.55% the previous month.

Combined with dropping home prices in several major markets, those lower borrowing costs made it easier for home buyers to purchase a home throughout much of Canada.

March 2025: How much did you need to earn to buy a home in Canada?

This report is for illustration purposes only. Data is based on a mortgage with a 10% down payment, 25-year amortization, $4,000 annual property taxes and $150 monthly heating. Mortgage rates are the average of the Big Five Banks’ 5-year fixed rates in February and March 2025. Average home prices are from the CREA MLS® Home Price Index (HPI). Please note that Ottawa’s February home price has been updated in this report to reflect CREA’s most recently reported numbers.

In fact, home affordability improved by the largest margin in the Golden Horseshoe housing markets, which include Toronto and Hamilton. The 6ix topped the rankings, as the required income to purchase the average priced home fell by $4,190. This was largely due to a $5,400 drop in the average home price, to $1,068,500. The average monthly mortgage payment a buyer would need to make also dropped by $121, to $5,422.

In Hamilton, home prices dipped by $1,600 on a monthly basis, bringing the average down to $811,000. That in turn lowered the required income by $2,700, and the average mortgage payment by $79.

Rounding out the top three was Fredericton; this market’s affordability ranking has fluctuated in recent months, placing it either at the top or the bottom of the chart in previous editions. This is due to its overall lower average home price ($335,900 in March), which makes it more sensitive to even small swings in buyer demand and price. This month, the average price in the east coast city dropped by $7,900 compared to February, pulling the required income down by $2,500. The monthly mortgage payment also dropped by $71, to $1,704.

What’s next for housing affordability in Canada?

Ongoing tariff threats and evolving global trade war have made for an uncertain interest rate outlook. While resulting market uncertainty had initially caused bond yields to drop, they’re now ticking back up. This is an interesting phenomenon; while investors usually pile into bonds during periods of market anxiety, the opposite is now occurring as Trump’s braggadocio and policy see-saw has led to a loss of confidence in US-backed assets. As a result, yields have steadily climbed, with the US 10-year Treasury recovering back to the 4.4% range, and Canadian yields in the upper 2.7% range, in turn putting upward pressure back on fixed mortgage rates.

Variable mortgage rates also won’t see discounts in the short term; economic unease has prompted the Bank of Canada to put a pause on borrowing costs, holding its overnight lending rate at 2.75% in its most recent rate announcement on April 16. As a result, there’s been no change to the prime rate (currently 4.95%), which lenders use to price variable mortgage rates.

Despite a softer-than-expected inflation reading in March – which would normally give the Bank room to lower rates further – its Governing Council has made it clear that it will continue to monitor the evolving tariff situation, and short-term impacts on the economy, as it makes its future rate calls on a case-by-case basis. It has also stated it will prioritize keeping inflation from growing out of hand, should tariffs drive prices higher. 

“Governing Council will continue to assess the timing and strength of both the downward pressures on inflation from a weaker economy and the upward pressures on inflation from higher costs,” stated the Bank in its April rate announcement. “Our focus will be on ensuring that Canadians continue to have confidence in price stability through this period of global upheaval. This means we will support economic growth while ensuring that inflation remains well controlled.”

Also read:

• Bank of Canada holds target interest rate at 2.75% in April 2025 announcement
• March CPI comes in surprisingly soft at 2.3%
• Inflation and the Consumer Price Index in Canada
• Canadian March home sales fall to a 16-year low due to tariff fears